Key Considerations Before You Decide
Before making a decision about your home, it's essential to assess your financial needs, emotional attachments, and long-term goals. The path you choose will have significant consequences for your finances and your family's future inheritance. It's a complex puzzle with no one-size-fits-all answer, so start by evaluating your priorities.
Option 1: Selling Your Home Outright
One of the most direct and common options is to sell your house. This frees up a substantial amount of capital, which can be used to pay for assisted living costs, fund a more comfortable lifestyle, or be invested for future needs. Selling eliminates the responsibility of being a landlord or worrying about an unoccupied property. However, it can be an emotionally difficult decision, representing a final move away from a long-time family home. Additionally, you will need to consider the timing of the sale relative to the housing market and potential capital gains taxes. The preparation and process of selling can also be physically and emotionally demanding, so enlisting help from family or a real estate agent is often necessary.
Advantages of Selling:
- Provides immediate liquidity to pay for care.
- Eliminates all homeownership burdens, including maintenance, taxes, and insurance.
- Simplifies estate planning for your heirs.
Disadvantages of Selling:
- Involves emotionally difficult decisions about a family home.
- Subject to market conditions and potential capital gains taxes.
- Requires effort to declutter and prepare the house for sale.
Option 2: Renting Your Property for Income
If you prefer to retain the property as an asset, renting it out is a viable option. The passive income from rent can help offset the monthly cost of assisted living. This choice keeps the property within your family's assets, preserving it for a potential future return or as an inheritance. However, being a landlord comes with responsibilities, such as maintenance, finding tenants, and collecting rent. Many people find it beneficial to hire a property management company to handle these tasks, though this will reduce your rental income.
Considerations for Renting:
- Generates a steady stream of income for long-term care expenses.
- Retains the property as an asset for the family.
- Requires active management or hiring a property manager.
- Involves tenant risks and ongoing maintenance costs.
Option 3: Keeping the Home Unoccupied
Leaving the home vacant is another, less common option, usually chosen for emotional reasons or when a short-term solution is needed. While this avoids the emotional toll of selling and the responsibilities of being a landlord, it is often the least financially practical choice. An unoccupied home still incurs significant expenses for property taxes, insurance, utilities, and ongoing maintenance. Furthermore, homeowner's insurance policies often have stricter coverage rules for unoccupied properties, and there is a higher risk of vandalism or theft.
The Role of Medicaid and Your House
For those who may require financial assistance for long-term care through Medicaid, the situation with your house becomes more complex. Assisted living is typically private-pay, but if a resident's needs increase and they must move to a skilled nursing facility, Medicaid may become a factor. Medicaid generally allows you to keep your primary residence while you are alive and living there. However, if you are permanently institutionalized and don't have a spouse or dependent living in the home, it could become a countable asset. Even if it remains exempt during your lifetime, the state's Medicaid Estate Recovery Program (MERP) can place a lien on the property to recover costs paid for your care after you pass away. Consulting an elder law attorney is crucial to understand state-specific rules and asset protection strategies.
Medicaid Estate Recovery Program (MERP)
MERP allows states to recover costs for long-term care services from a deceased recipient's estate. The home is often the most significant asset in the estate, so it is frequently targeted. There are, however, exceptions where recovery may be prevented, such as when a surviving spouse or a disabled child lives in the home. Strategic planning is necessary to protect the property.
Legal Tools to Protect Your Home
Proper legal planning can protect your home and other assets. An Irrevocable Trust is a common tool, where you transfer ownership of your home to the trust. This removes the property from your estate, protecting it from Medicaid estate recovery, provided you follow the Medicaid look-back period. A Life Estate is another option, where you retain the right to live in the home for your lifetime while immediately transferring ownership to a designated family member (the "remainderman"). This avoids probate and protects the house from estate recovery, though it also has restrictions and should be set up with legal guidance.
How Your House is Affected: A Comparison
| Action | Pros | Cons | Medicaid Impact |
|---|---|---|---|
| Sell | Frees up cash, no management burden | Emotional, potential capital gains tax | Funds must be spent down before Medicaid eligibility |
| Rent | Passive income, retains asset for family | Landlord responsibility, requires management | Rental income may affect Medicaid eligibility |
| Keep Vacant | Sentimental value, short-term flexibility | High costs, maintenance, insurance risk | State may place a lien through estate recovery |
| Use a Trust | Protects home from Medicaid recovery | Requires legal counsel, must adhere to look-back period | Home is not a countable asset if in trust for >5 years |
| Create a Life Estate | Retains residency, protects from recovery | Can be complex, relinquish control to remainderman | Protects home if set up correctly outside look-back period |
Conclusion: Making the Right Decision for You
Determining what happens to your house when you go into assisted living is a deeply personal and financially significant decision. It requires careful consideration of your health, finances, family relationships, and the potential need for government assistance. There are multiple paths forward, each with its own set of advantages and challenges. For some, selling and using the proceeds for care is the most straightforward option. For others, retaining the property through renting or legal instruments like a trust offers more security. The complexity of elder law and state-specific regulations means that consulting with an experienced elder law attorney is an invaluable step to ensure your wishes are honored and your assets are protected. Taking the time to plan now will provide peace of mind and secure your financial future.
For more information on selling a home to pay for care, see this guide from A Place for Mom.
